Greece on verge of debt forgiveness deal with creditors

The Greek government last night appeared to be on the verge of an agreement with some of its major creditors to restructure its bulging €355bn debt pile – although doubts remain about how many of the country's bondholders will sign up to the deal.

The strong possibility remains that a number of small hedge funds that have bought Greek bonds at distressed prices in recent months will refuse to give their assent, forcing the government of Prime Minister Lucas Papademos to retrospectively rewrite the terms of the debt contracts. It is feared that such a move could create a potentially dangerous new source of financial instability for the eurozone.

Talks in Athens between the Institute of International Finance (IIF), which represents the majority of Greece's bondholders, made progress yesterday, with reports suggesting that an agreement would be concluded to swap €200bn of existing Greek bonds for investments with a long term value of up to 70 per cent less.

Sources close to the discussions suggested that the new bonds would be repayable after 30 years and would pay out annual interest of 4 per cent. The last round of talks broke between the IIF and the Greek government about the size of the interest rate, technically known as the "coupon", on the new bonds. Greece is due to redeem €14.5bn in bonds that mature on 20 March. The country's official backers in the European Union and the International Monetary Fund have said they will not transfer the funds that Athens needs to meet that obligation unless the country and its creditors agree to restructuring deal.

Without those funds, Greece would be forced into a disorderly default, something that would create chaos throughout the European financial system. But even if a deal is done and those official bailout funds are delivered, hedge funds that are believed to be holding out for a large profit on the Greek bonds that they bought cheaply might refuse to sign up to the deal, forcing Athens to impose losses on them unilaterally.

Such a move would shatter any pretence that the restructuring deal is "voluntary" and would trigger Credit Default Swaps held by hedge funds and other investors in Greek debt. The financial firms that have written these financial insurance contracts would then register losses, creating another source of instability for the European banking system.

Two New York hedge funds – Och-Ziff and York Capital – confirmed this week that they have acquired Greek bonds, although they insisted that their holdings were small. They also confirmed that they have taken no part in the restructuring talks with the Greek government.

Start your day with The Independent, sign up for daily news emails
News
The cartoon depicts the UK (far left) walking around a Syrian child refugee
newsIn an exclusive artwork for The Independent, Ali Ferzat attacks Britain's lack of 'humanity'
Life and Style
Man taking selfie in front of car
health
Sport
footballManager attacks Sky Sports pundit Jamie Redknapp after criticism of Diego Costa's apparent stamping
Life and Style
food + drink
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Digital Account Manager - OTE £40,000

£25000 - £40000 per annum: Recruitment Genius: This web-based lead generation ...

Tradewind Recruitment: Intervention Teacher Required To Start ASAP.

£125 - £150 per day + Negotiable: Tradewind Recruitment: A 'wonderful primary ...

Tradewind Recruitment: Maths Teacher

£90 - £140 per day: Tradewind Recruitment: Our client is an 11-16 mixed commun...

Recruitment Genius: PHP / Drupal / SaaS Developer

£32000 - £36000 per annum: Recruitment Genius: A rapidly developing company in...

Day In a Page

Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness
Homeless Veterans appeal: Homeless in Wales can find inspiration from Daniel’s story

Homeless Veterans appeal

Homeless in Wales can find inspiration from Daniel’s story
Front National family feud? Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks

Front National family feud?

Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks
Pot of gold: tasting the world’s most expensive tea

Pot of gold

Tasting the world’s most expensive tea
10 best wildlife-watching experiences: From hen harriers to porpoises

From hen harriers to porpoises: 10 best wildlife-watching experiences

While many of Britain's birds have flown south for the winter, it's still a great time to get outside for a spot of twitching
Nick Easter: 'I don’t want just to hold tackle bags, I want to be out there'

'I don’t want just to hold tackle bags, I want to be out there'

Nick Easter targeting World Cup place after England recall
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore